How to file your ITR when you earn foreign income or hold foreign assets

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If you are an Indian resident who receives income outside the country—through work from home, foreign investment, or inheritance—or possess foreign bank accounts or shares in foreign companies, the Income Tax Department requires that you mention these details clearly in your Income Tax Return (ITR). Not mentioning foreign assets can invoke heavy penalties under the Black Money Act.

Use the correct ITR form for foreign assets

If you have foreign income or assets, you cannot fill the standard ITR-1 form. You must fill ITR-2 or ITR-3, subject to whether you have business income. These forms contain special pages for reporting foreign bank accounts, foreign immovable property, foreign financial interest in foreign entities, and foreign retirement funds. Filling the wrong form or omitting these can flag an alert.

Report global income if you are a resident

If you are 'Resident and Ordinarily Resident' (ROR), your income—earned in or outside India—is taxed. That includes salary from a foreign employer, rental income on foreign real property, dividends, or interest from a foreign bank account. If you are Non-Resident (NR) or Resident but Not Ordinarily Resident (RNOR), only income earned in India is tax payable.

Disclose all foreign accounts and holdings

Even if you have no income from them, all foreign assets must be disclosed. These include foreign bank deposits, shares, units of mutual funds, insurance policies, and foreign pensions. Disclose these in Schedule FA in your ITR. You must provide details like country name, type of account, highest balance during the year, and date of opening of account. Not disclosing these assets will attract a ₹10 lakh penalty per year under the Black Money Act.

Avail relief under DTAA to avoid double tax

If your foreign income is also subject to tax in the foreign country, you are entitled to relief under DTAA in India. You will have to report the income and foreign tax paid in the ITR, and file Schedule TR and Schedule FSI for claiming tax credit. This will prevent you from paying the same income twice, but you must keep proof of tax paid in the foreign nation.

Keep records handy during inspection

Returns of foreign income and assets are rigorously checked. Keep foreign tax returns, salary payments, investment accounts, and bank account statements ready for at least 6 years. Even if local law exempts your foreign income, it is still subject to tax in India. Accuracy and transparency in your return avoid any future troubles or notice from the taxing authority.

FAQs

Q. Do I need to report a dormant foreign bank account?

Yes. Whether or not the account is dormant and does not generate any income, it must be reported under Schedule FA.

Q. Is prior foreign income earned before moving to India taxable?

No, income earned before one becomes a resident is exempt. Any income earned after becoming a resident, however, must be reported.

Q. Can I skip reporting if tax was already paid abroad?

No. You still need to file your Indian ITR and claim DTAA relief. Filing is mandatory if income is more than ₹2.5 lakh.